2011 the tax rate in Hungary for an individual is 16%. The 16% rate is imposed on a wider tax basis of 1.27, bringing the effective tax rate to 20.3%.

Calculation of taxable income and applicable income tax rates depend on the category of income.

Corporate tax

Corporate tax in Hungary in 2011 is fixed at 19%.

Corporate tax for income up to HUF 500 million is 10%. (HUF 250 million in 2010).

Health tax

A 14% health tax applies on income from a business, dividends, income from securities lending, capital gains, and rental income from leasing out property exceeding HUF1 million (€4,833).

Property tax

Note that the local government may or may not levy such taxes, and also that the rates vary for each municipality. This may be an important factor to consider, when choosing a property.

Building Tax

The building tax may be imposed by the local government, payable by the property owner each year. The rates and the tax base vary from each locality/municipality, subject to:

A maximum of HUF900 (€4.35) on a per square meter basis or

A maximum of 3% on the market value of the building

Land Tax

Land Tax may be levied on idle land on the portion classified as a “downtown area” by the local government council. The council either levies the tax as:

Per square metre of the plot at the maximum rate of HUF 200 (€0.97) per sq. m.,

Or on the adjusted market value of the property, in which case the maximum tax rate is set at 3%. Adjusted market value is generally 50% of the market value of the property.

Rental income

Rental income is taxed at a flat rate of 16%. The taxable income can be computed by:

Deducting expenses actually incurred and documented in the renting process such as lighting, maintenance, administrative costs, etc. Or by deducting a 10% notional deduction from the gross income (10% expense ratio).

Capital gains

Net capital gains realized by nonresident individuals on sale of real estate are taxed at a flat rate of 16%. Acquisition costs and related expenses, improvement costs, and cost of transferring the property can be deducted from the revenue to arrive at the net capital gains. If the deductible expenses are not documented and if the acquisition costs are not substantiated, the 16% rate will be applied to 25% of the gross proceeds.

The taxable gain is reduced by 10% every year after the fifth year, so that in the fifteenth year after acquisition, the taxable gain is reduced to zero (i.e. 10% reduction in the 6th year after the year of acquisition, 20% in the 7th year, 30% in the 8th year, 40% in the 9th year, 50% in the 10th year, etc.).

VAT

In most cases, Hungary Value Added Tax is payable at a rate of 25%.

There are reduced rates of 18% , relating to hotels and basic food, and 5% rate that relates mainly to products and services such as books and medicines.

Dates for Filing Reports

Reports must be filed monthly or quarterly with the VAT Authorities, with the report and payment being made by the 20th day of the month following the period relevant to the report.

A monthly return must be made by the owner of a business for which the VAT payable in the previous year was in excess of HUF 1 million.